Transcript A Brief Guide to Compulsory Pension Provision

Little and Georgiou LLP
18.3
yrs
Male life expectancy
at age 65
c.
25k
Average size of DC pot used
to purchase annuity
12%
9%
DB schemes open to
new members
Average contributions
to DC
£75bn
Government spending
on state pensions
c.
2
m
Pensioners in poverty
11
m
People under-saving
for their retirement
2004
Auto-enrolment
recommended
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Why - To reduce dependency upon the state in retirement
When - Various “staging dates” from October 2012, depending
upon number of employees (and PAYE reference
number if less than 30 employees)
How - Via N.E.S.T. or a Qualifying Workplace Pension Scheme
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Auto enrolment is not just about pensions, it is about
processes, data, technology and payroll
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AE more complicated than most employers think
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Employers are under-prepared and leave it too late
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Takes longer than anticipated
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Don’t assume existing pension scheme can be an
auto enrolment vehicle
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Not
now....!
Come
back later
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Marketing the scheme
Assessment of workforce
Scheme Design
Postponement
Statutory communications
Enrol employees
Manage opt outs
Employer duties
Complete scheme certification
Record keeping
Register with the Pension Regulator
Continual assessment
Tri annual review
Re auto enrolment
And so on……………….
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• At staging for all existing workers
• On the 16th or 22nd birthday
• First day of employment for new employee
• First day of pay reference period for any other worker
assessed after staging
• If postponement has been used – last day of
postponement period
• Assessed based on age and “qualifying earnings”
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Worker
Age
Earnings
Eligible Jobholder
22 – state pension age
Over £10000 (2014/15)
Non Eligible Jobholder
16 – 21 and state
pension age to 74
Over £10000 (2014/15)
Non Eligible Jobholder
16 - 74
£5772 - £10000
Entitled Worker
16 - 74
Less than £5772
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Employee
Category
Action Required
Employee already in
qualifying scheme with
employer
Existing Member
No joining action required
Earning at least £833 per
month
Aged 22 – state pension age
Eligible Jobholder
Automatically Enrol into a
qualifying workplace scheme
Earning between £481 and
£833pm
Aged between 16 and 74
Non eligible Jobholder
Can Opt in and receive
employers contributions
Earning at least £833 pm
Non eligible Jobholder
Aged 16-21 or between state
pension age and 74
Can Opt in and receive
employers contributions
Earning less than £481pm
Aged between 16 and state
pension age
“Entitled” to join a scheme
Employer does not have to
contribute
All other employees
Entitled Worker
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Knowing who to auto enrol
Employee
Category
Action Required
Employee already in qualifying
scheme with employer
Existing Member
No joining action required
Earning at least £833 per month
Aged 22 – state pension age
Eligible Jobholder
Automatically Enrol into a
qualifying workplace scheme
Earning between £481 and
£833pm
Aged between 16 and 74
Non eligible Jobholder
Can Opt in and receive
employers contributions
Earning at least £787 pm
Aged 16-21 or between state
pension age and 74
Non eligible Jobholder
Can Opt in and receive
employers contributions
Earning less than £481pm
Aged between 16 and state
pension age
Entitled Worker
“Entitled” to join a scheme
Employer does not have to
contribute
All other employees
Certification
Employer must choose suitable scheme for their employees
Scheme contributions can be based on 8% of ‘qualifying earnings’ £5,668 - £41,450 (2013/14).
However most employers prefer to certify that schemes meet one of
the tiers of ‘alternative requirements’ for qualifying.
Pensionable
Pay Definition
Minimum
Employer %
Minimum Total
%
Tier 1
Basic Pay
4
9
Tier 2
Basic >85% of
total earnings
3
8
Tier 3
Total earnings
3
7
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7% of all earnings
8% of pensionable
salary > 85% of total
payroll pensionable
9% pensionable
salary
8% of qualifying
earnings
Total
Total
Total
Total
Employer
Employer
Employer
Employer
Staging
Date until
Sept 2017
2%
1%
2%
1%
3%
2%
2%
1%
Oct 2017
until Sept
2018
5%
2%
5%
2%
6%
3%
5%
2%
October
2018
onwards
7%
3%
8%
3%
9%
4%
8%
3%
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All eligible employees must be auto enrolled. This must be immediately upon
joining the company or any time up to 3 months after joining in order to tie in
with payroll, administration, procedures or to avoid enrolling very short term
employees. An Employee can choose to opt-in during the three month period.
Individuals can opt out at anytime but they will only receive a refund if they opt
out during the first month.
Individuals who choose to opt out must be auto re- enrolled on the 3rd
anniversary of the employer’s staging date.
Employers will face fines (and potentially imprisonment) if they induce or
otherwise encourage an employee to opt out.
Opt out process must be handled by pension provider
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• Also known as “waiting period”
• Can be used at staging date, when an employee becomes eligible or when
a new employee joins workforce
• It suspends the duty of assessment for up to 3 months
• An employee can opt in or join during this period
• Employer must notify employees if using postponement via statutory
communications
• Employer must assess on last day of postponement and auto enrol eligible
jobholders or
• if not eligible monitor each future pay reference period
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• Must be direct – letter, email, payslip
• At staging, need to communicate with all workers, even existing scheme
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members
Non eligible jobholders and entitled workers must be provided with
information about right to opt in or join
Eligible jobholders being automatically enrolled must be provided with
Information about their enrolment
What it means for them, including contributions and
Their right to opt out
Workers must be informed if postponement is being used
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Employer duties are not optional.
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The penalties for not complying are severe.
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Employer must ‘market’ the scheme to all employees.
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Employer must provide accurate and up to date payroll data to the
Qualifying Workplace Pension Scheme.
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Employer must provide annual statements.
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Employer must retain specific records relating to employees’
pension benefits for a minimum of 6 years.
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Fixed penalty notices - £400
Escalating penalty notices from £50 - £10,000 per day
Number of Employees
Prescribed Daily Rate
1–4
£50
5 – 49
£500
50 – 249
£2500
250 – 499
£5000
500 +
£10000
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Action / Communication
Deadline
Letter to existing qualifying pension scheme
members at Staging
2 months after Staging
Letter to workers who are not already in a
qualifying pension scheme at Staging
6 weeks after Staging
Joining Window, enrolment notifications
& Transitional Period notices
6 weeks from the Assessment date
Opt Out Window
1 month - from the latest of when:
• the enrolment notification is issued; and
• active membership is achieved.
Postponement notices
6 weeks from the day after the Assessment Date
(e.g. before midnight of Mon 12th May, if assessed Tue 1st April).
(e.g. before midnight Tue 13th May, if assessed on Tue 1st April).
Complete Registration after Staging
5 months after Staging
Complete Registration after Re-enrolment
2 months after Re-enrolment
Normal contribution payments to scheme
provider
22nd day of the month following the month of deduction
New member contribution payments to
scheme provider
22nd day (for electronic payments) of the first month,
following a three month period starting the day active
membership is effective (19th day for non-electronic payments).
(for all deductions made in first 3 months of
membership)
(19th day for non-electronic payments).
Eg Enrolments 2nd Jan to 1st Feb = e-payment deadline is 22nd May.
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“Employers should be under no illusions: this will take time, including
assessing the suitability of their existing pension arrangements or
choosing a scheme and adapting their payroll, HR, pensions and IT
systems” The Pensions Regulator
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“Pension providers turn away auto – enrolment business as capacity
crunch bites” Money Marketing
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“An employer should ideally be thinking about auto enrolment at a
minimum of at least six months ahead of their staging dates, preferably
longer” Money Marketing
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Employers required to register by staging date
50 or more people in PAYE scheme
(lower estimate)
499 – 51
in PAYE
Source: The Pensions Regulator, “Automatic enrolment: Staging profile and forecast volumes”, September 2012
Employers required to register by staging date
Under 50 people in PAYE scheme
(lower estimate)
140,000
<50
Source: The Pensions Regulator, “Automatic enrolment: Staging profile and forecast volumes”, September 2012
Employers must decide which route to take to meet the requirements
of Auto Enrolment
1)
Use N.E.S.T. and rely upon the web and telephone helpline
support
or
2)
Establish a Qualifying Workplace Pension Scheme through a
pension provider with the initial and ongoing assistance of
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“Our research shows that…….employers with
as few as one hundred staff – are expecting
help from NEST and other providers……the
fact is we won’t be able to and neither will any
other provider”
Roy Porter, NEST assistant director, distribution
Little and Georgiou
• National Employment Savings Trust is a low-cost pension scheme
set-up by the Government and delivered by Tata.
• N.E.S.T. must be used if a Qualifying Workplace Pension Scheme is
not in place. Scheme of last resort
• N.E.S.T. Features;
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Five default Target Date Funds - based on time to retirement (not risk)
Target Date Funds manage asset allocation as retirement date approaches
Initial charge of 1.8% per contribution (until set-up costs are met)
Annual Management Charge of 0.3%
Estimated Total Expense Ratio of 0.5% (based on N.E.S.T. figures)
No Transfers-In or Transfers-Out
Contribution limit of £4,600 (for 2014/15 tax year)
Retirement Options restricted to Annuity, Open Market Option or Triviality
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N.E.S.T.
Advantages
Disadvantages
“Low” Cost scheme – Initial Charge of 1.8% per
contribution until the scheme “set up” costs are
recovered
No Face-to-Face Assistance
“Low” Cost scheme – Annual Management Charge
of 0.3% per annum
Administered by Tata through telephone Helpline
and Online systems
No external administration costs (i.e. Adviser fees)
Transfers-In and Transfers-Out not allowed
Target Date Funds manage asset allocation as
retirement date approaches (not automated)
Annuity , Open Market Option and Triviality are
the only Retirement options
Investment choice limited (5 funds)
Death Benefits potentially subject to Inheritance
Tax (due to no discretion for N.E.S.T. Trustees over
their payment)
Annual contribution limit £4,600
(this is potentially insufficient for high earners)
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• A Qualifying Work Place Pension Scheme is a new
arrangement administered by a Pension Scheme Provider
• Qualifying Workplace Pension Scheme can be used as an
alternative to N.E.S.T.
• Qualifying Workplace Pension Scheme Features;
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Many investment funds to choose from
A default fund must be nominated (a risk-based fund with Lifestyling)
Flexibility of charging structure
Can Transfer-In and Transfer-Out of Scheme
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Qualifying Workplace Pension Scheme
Advantages
Disadvantages
Wider fund choice usually
Potentially more expensive than the N.E.S.T.
scheme for Employees (if Adviser Fees are met
from contributions)
Option to consolidate existing plans through
Transfers-In
Potential external Administration costs (if Adviser
Fees are met by the Employer)
Help with initial set up and ongoing administration
/ enquiries
Full range of Retirement Benefit Options
Death Benefits not subject to IHT
No annual contribution limits
(other than normal pensions regulations)
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Services to the Employer
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Advice and assistance on choosing an appropriate Qualifying
Workplace Pension Scheme
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Advice and assistance on the setting up and operation of the
Qualifying Workplace Pension Scheme including the enrolment
of members
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Periodic reviews of the Qualifying Workplace Pension Scheme to
make sure it continues to meet the requirements of the company
and that it complies with pensions legislation
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Specific advice and guidance regarding new responsibilities
under pensions reform and automatic enrolment
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• Services to the Employees
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Support in joining the Qualifying Workplace Pension Scheme
including the provision of communications/guidance around
investment choices
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Regulated advice concerning joining the Qualifying Workplace
Pension Scheme
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At the request of an employee, advice on bringing transfers into
the scheme; paying additional single premiums into the scheme;
increasing regular contributions above the standard scheme
basis
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